A few months ago, a real estate company brought an action against the Securities and Exchange Commission, and apparently the SEC now has been served in the case, known as Platform Real Estate, Inc. vs. United States Securities and Exchange Commission. The federal case was filed in the Southern District of NY. The suit seeks a “declaratory judgment,” or a court’s interpretation of the law as it applies to a particular situation. The plaintiff is asking the court to declare that traditional finders in private securities offerings should not have to be registered as broker-dealers with the SEC. The SEC’s position on the matter, set out in a series of “no-action” letters back in 2001, provides only very limited circumstances where private placement finders would not have to be registered. Prior to that, finders that merely introduced investors to a company and did not engage in negotiations or provide financial advice could earn commissions without registration.
Why does this matter? Many smaller companies, both public and private, struggle to raise money. Traditional investment banks often eschew involvement with smaller companies since the amounts raised are smaller, making their fees smaller. Thus, many of these companies turn to unregistered finders, often individuals who are expert at raising smaller amounts for earlier stage companies. The cost of registering as a broker, maintaining that registration and satisfying net capital requirements is prohibitive for a number of these finders given the size of deals they tend to work on.
Platform’s argument is that the SEC’s position is legally wrong. They point to language in Section 15(a) of the Securities Exchange Act and argue that the language limits the requirement to register to those using securities exchanges or over-the-counter platforms to effect securities transactions. Finders generally do not effect trades through exchanges or OTC platforms. In 2014, the SEC did provide no-action relief for brokers of mergers and acquisitions involving private companies to avoid registration in many circumstances. We will monitor this case for further developments.
Given the shutdown of the SEC as part of the wider government shutdown, we are seeing many registration statements being filed with no delaying amendment language and with the language required by Rule 473 to allow automatic effectiveness in 20 days in accordance with Section 8(a) of the Securities Act. In the last two weeks, at least 30 such registration statements have been filed. In all of 2018, there were only three such registration statements, and in all of 2017, there were only two. Obviously, the deals must go on, and corporate issuers and their counsel have seen the Division of Corporation Finance’s FAQs regarding Actions During Government Shutdown and have heeded the answers set forth therein. (For now, the FAQs are posted on the Division of Corporation Finance’s homepage.)
The first of these “automatically effective” registration statements filed in 2019 was on Form S-4 in connection with the pending merger of BSB Bancorp and People’s United Financial, Inc. Since then, issuers have filed these registration statements on Forms S-1, S-3 and S-4 in connection with a variety of transactions. If the government shutdown continues, we should expect to see many more of these filings.
Our partner Richard Renck in Wilmington recently posted an entry on our Delaware Business Law Blog regarding the Comverge case decided last month by the Delaware Court of Chancery. Among other things, the Court’s opinion provides practitioners and clients with insight regarding break-up fees as well as a road map of how the Court of Chancery reviews challenges to third-party sale transactions, approved by a disinterested board, under the enhanced scrutiny of Revlon. Please see Richard’s post here.
The Federal Trade Commission announced yesterday that it has made its annual adjustments to the thresholds for determining whether a transaction is reportable under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the amount of the related filing fee. The new thresholds were published today in the Federal Register. Under HSR, certain transactions may not be completed until a waiting period (generally 30 days unless extended by a request for additional information or terminated early upon request) has expired after the required notifications are filed.
Continue reading FTC Revises Hart-Scott-Rodino Thresholds
Chancellor Strine rebuked Goldman Sachs and El Paso CEO Doug Foshee on the record and agreed with disgruntled shareholders that the sale process was likely tainted by breaches of fiduciary duty, but in the end, the Chancellor declined to enjoin a stockholder vote on the proposed $31 billion acquisition of El Paso by Kinder Morgan.
The opinion, issued February 29, 2012 in the case of El Paso Corporation Shareholder Litigation in the Chancery Court of Delaware, has been widely cited and discussed for its criticism of Goldman Sachs and Foshee for maintaining conflicts of interest through the negotiation process with Kinder Morgan. In that regard, the opinion is instructive to conscientious boards, management and professionals.
Continue reading Chancellor Strine’s El Paso Opinion Critical of CEO and Goldman Sachs, Provides Guidance on M&A Conflicts of Interest
The Federal Trade Commission has made its annual adjustments to the thresholds for determining whether a transaction is reportable under the Hart-Scott-Rodino Antitrust Improvements Act. Under HSR, transactions that satisfy specified thresholds may not be closed until the earlier of the date on which a waiting period of 30 days (subject to extension if additional information is requested) has expired after the filing of the required notification or early termination of the waiting period is granted. The new thresholds, which apply to any transaction that closes on or after February 27, 2012, are as follows: Continue reading FTC Revises HSR Filing Thresholds